RELEASE: S&P places PT Sumber Segara Primadaya B- rating on Watch Neg

(SINGAPORE March 12, 2008)--Standard & Poor's Ratings Services said today it placed its 'B-' corporate credit rating on Indonesian power generating entity PT Sumber Segara Primadaya (S2P) on CreditWatch with negative implications.

This comes after S2P's sustained delay in attaining anticipated operational standards, resulting in cash flows below the levels required under the debt-repayment arrangements of the company. This gap currently has been met by ad-hoc equity infusions--a total of up to US$10 million in December 2007 and January 2008 by company shareholders.

S2P is 49% owned by PT Pembangkitan Jawa-Bali (PJB) and 51% owned by PT Sumberenergi Sakti Prima (SSP). PJB is in turn 99.9% owned by PT Perusahaan Listrik Negara (Persero), Indonesia's state-owned integrated electricity utility. While this reflects an element of shareholder support, the arrangement is fraught with uncertainty on its timeliness and predictability, especially given S2P may continue to face near-term operational challenges.

"We believe that, over the next two to three months, operating cash flow may fall short of the levels required to service the maturing US$50 million debt in July 2008 under a stand-by letter of credit facility," said Standard & Poor's credit analyst Joey Chew. "That is a likely scenario as half of the company's 600 MW generating capacity would be shut for major maintenance."

"This will not result in a financial default or delay, as the company said that the maturing debt is simultaneously covered by a US$50 million cash collateral held by the letter of credit issuing bank," Ms. Chew said.

Nonetheless, the deviations from expected operating performance are significant and may continue to constrain the overall credit profile of the company. While these are partially attributable to adverse weather conditions in the past few months and S2P's inability to raise funds due to difficult credit market conditions, the current rating may not adequately reflect concerns on the company's operating and liquidity conditions.

In resolving the CreditWatch, Standard & Poor's would focus on the measures taken to improve liquidity and restore operational stability, thereby enhancing the predictability of operating cash flows. Such steps are more relevant for ensuring timely debt servicing compared with backstop liquidity measures. Given the level of divergence from the anticipated operating performance in a relatively short period and persisting liquidity concerns, future rating actions may place greater emphasis on the track record established by the company. The immediate pressure on the ratings is also partially mitigated by our expectation of some level of support, based on the affirmations made by the respective shareholders of the company.(end of release)

Ed, Note: S2P is the owner of Cilacap, Central Java 2x300-MW coal-fired power plant. (*)